2016 Insurance M&A Outlook

A year of continuing exuberance

Will 2016 insurance industry mergers and acquisitions (M&A) keep pace with 2015's record-setting results? Or might economic, operational, and regulatory factors temper buyers' and sellers' enthusiasm? In this report, Deloitte highlights the current state of insurance industry M&A, examines key drivers and trends for 2016, and suggests what leading insurance organizations should be doing to identify and capitalize on M&A opportunities as they move forward.

What M&A trends are for the insurance industry in 2016?

Insurance was one of many industries that enthusiastically embraced M&A in 2015 as a way to boost revenue growth, enter new markets, and improve operating efficiencies. Will that exuberance extend into 2016?

The members of Deloitte's Insurance M&A leadership team have produced this 2016 outlook to assist insurance industry leaders with their M&A planning and implementation. We hope to equip executives with foresight that enables them to better anticipate and address potential M&A opportunities and challenges in the coming year. Specifically, we suggest company leaders plan for and address six marketplace drivers and trends that may help or hinder their M&A plans:

  1. An environment of high confidence: Despite generally positive market conditions entering 2016, there always exist potential cross-currents and areas of uncertainty that might impede inbound and outbound M&A. In the US, insurance executives should be mindful of potential impacts from fluctuating economic conditions, volatility in the US equity markets, rising interest rates, and the 2016 presidential election.
  2. Regulatory developments cut both ways: The trend of more stringent regulation continues and insurance companies should take note of several regulatory developments that may impact their 2016 M&A planning. These include capital requirements, the DOL and CFPB rule package on retirement asset management, inversion regulations, and proposed PFIC regulations on hedge funds.
  3. A reasonable valuation environment leading to an increased supply of acquisition targets: A major impediment to more M&A activity has been a scarcity of available targets. This supply/demand imbalance may improve in 2016, thanks, in part, to a reasonable valuation environment.
  4. Continued demand by foreign buyers to invest in the US market: Foreign companies, especially those from China and Japan, see US insurance assets as valuable additions to their portfolios and are buying business-building platforms to enable future growth and expansion.
  5. The increase in number and strategic significance of fintech-oriented transactions: Start-up financial technology ("fintech") organizations offer significant potential for insurers as venture portfolio investments, components of a broader economic ecosystem, or potential acquisitions that become integrated into existing operations.
  6. Investment activity by "alternative capital": Private equity firms, hedge funds, and other sources of alternative capital will continue to shop for insurance properties in 2016; however, the industry's lower and/or longer-run rates of return may leave the window open for capital-rich strategic buyers that can offer a better price and create synergies that trump financial buyers.

Highlights of the 2016 Insurance M&A Outlook

Insurance company executives contemplating M&A in 2016 should consider hindsight, insight, and foresight to help identify and capitalize on potential growth opportunities. We suggest they consider planning for and addressing the six marketplace drivers and trends discussed in this report that could help or hinder their plans.

Specific highlights of this report include:
  • Current state of insurance industry M&A
  • Key drivers and trends for 2016
  • What leading insurance organizations should be doing to identify and capitalize on M&A opportunities
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